Johannesburg, 8 November 2017—Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Seguradora Internacional de Mocambique, S.A of AA-(MZ), with the outlook accorded as Stable. The rating is valid until September 2018.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Seguradora Internacional de Mocambique (“SIM”) based on the following key criteria:

SIM’s capital increased to MZN3.8bn at FY16 (FY15: MZN2.0bn), largely underpinned by property revaluation gains (MZN2.1bn). Accordingly, the insurer’s international solvency margin equated to a very high 256% at FY16 (or FY15: 141%). Going forward, risk adjusted capitalisation is expected to register within a very strong range, supported by the large capital base which is viewed to cater for contained underwriting risks, and elevated market exposure.

Liquidity remained strong, underpinned by sound cash flow generation and conservative asset allocation. In this respect, cash coverage of technical liabilities and monthly claims equated to 1.1x (FY15: 1.0x) and 85 months (FY15: 90 months) at FY16 respectively. GCR expects liquidity metrics to remain within a strong range over the medium term with potential balance sheet restructuring not expected to have a material impact on liquidity. Cognisance is taken of the high concentration of the insurer’s cash and short-term deposits to a related party bank which serves to heighten banking counterparty exposure. As such, liquidity will continue to exhibit sensitivity to any potential weakening in the credit strength of the bank.

SIM’s operating performance strengthened, with the operating margin equating to 74% in FY16 (FY15: 46%; five year aggregated margin: 49%). This was largely underpinned by the MZN2bn revaluation gain. As such, excluding fair value movements, the insurer’s earnings capacity is viewed to be healthy, with the adjusted operating margin equating to a stable 46% in FY16. In GCR’s view, sound levels of earnings are expected to be sustained over the rating horizon, supported by ongoing claims containment and scale efficiencies. The reinsurance panel reflects a sound aggregate level of credit strength, while maximum net deductibles per risk and event are limited to conservative levels in relation to capital (FY16: 0.9%).

SIM continues to maintain a strong competitive position in both the life and short term insurance markets. In this regard, the insurer’s market share of total industry GWP stabilized at 17%, with premium growth in FY16 aligned with the industry. SIM is viewed to be well positioned to defend its existing market status, on the back of strong group relationships and brand strength.

SIM’s business mix is well diversified, with four lines of business contributing materially to gross premiums. Similarly, the risk base is well spread across three lines of business, cumulatively accounting for 88% of net premiums. Aggregate product risk, which is viewed to be fairly limited, is expected to be maintained at similar levels over the rating horizon.

The rating currently matches the national scale ceiling applicable to entities operating in Mozambique. As a result, upward movement of the rating may follow an assessment of country and industry risk factors. A sustained weakening in operating profitability, a pronounced deterioration in key credit protection metrics, or a protracted deterioration in the local operating environment, could result in a downward rating adjustment. Further to this, a reduction in the credit strength of the banking counterparty would also result in negative rating pressure.

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Seguradora Internacional de Mocambique, S.A participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating has been disclosed to Seguradoa Internacional de Mocambique, S.A with no contestation of the rating.

The information received from Seguradora Internacional de Mocambique, S.A and other reliable third parties to accord the credit rating includes:

Audited financial results as per 31 December 2016

Unaudited interim results to August 2017

Four years of comparative audited numbers

Budgeted financial statements for 2017

Actuarial valuation report at 31 December 2016

The current year reinsurance cover notes

Other non-public statistical information

The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY

Accounting

A process of recording, summarising, and allocating all items of income and expense of the company and analysing, verifying and reporting the results.

Agency

An insurance sales office which is directed by an agent, manager, independent agent, or company manager.

Bond

A long term debt instrument issued by either: a company, institution or the government to raise funds.

Budget

Financial plan that serves as an estimate of future cost, revenues or both.

Capacity

The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.

Capital

The sum of money that is invested to generate proceeds.

Capitalisation

The provision of capital for a company, or the conversion of income or assets into capital.

Capital Base

The issued capital of a company, plus reserves and retained profits.

Cash

Funds that can be readily spent or used to meet current obligations.

Cash Flow

The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.

Claim

A request for payment of a loss, which may come under the terms of an insurance contract.

Conditions

Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.

Coverage

The scope of the protection provided under a contract of insurance.

Credit Rating Agency

An entity that provides credit rating services.

Deductible

The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer.

Exposure

Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For an insurer, its exposure may also relate to the risk related to policies issued.

Fair Value

The fair value of a security, an asset or a company is the rational view of its worth. It may be different from cost or market value.

Financial Statements

Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.

Industry Risk

The risk that defaults will arise in an industry because of factors specifically affecting that industry.

International Scale Rating LC

International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.

International Solvency Margin

Measures the ability to cover current year’s written premiums using shareholder’s funds.

Interest

Money paid for the use of money.

Liabilities

All financial claims, debts or potential losses incurred by an individual or an organisation.

Liquidity

The speed at which assets can be converted to cash. The ability of an insurer to convert its assets into cash to pay claims if necessary. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.

National Scale Rating

The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.

Operating Margin

Measures the efficiency of profit generation from investments and underwriting.

Operating Profit

Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.

Premium

The price of insurance protection for a specified risk for a specified period of time.

Rating Horizon

The rating outlook period

Reinsurance

The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.

Reserve

(1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.

Risk

The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.

Revaluation

Formal upward or downward adjustment to assets such as property or plant and equipment.

Short Term

Current; ordinarily less than one year.

Solvency

With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.

Underwriting

The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

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